Wednesday round up: Woodhill notes the weak recovery; Feldstein cites obstacles to recovery; The WSJ applauds Pawlenty.

From Forbes, Louis Woodhill contrasts the current recovery with the Reagan Boom and notes the weak dollar as a factor.

In The WSJ, Martin Feldstein argues the President’s proposed tax cuts and incoherent dollar policy, along with deficit, is holding back the economy. For the record, Feldstein has long supported a lower dollar.

The WSJ applauds Tim Pawlenty’s call for higher growth via flatter tax rates and a stable dollar, but is concerned by his support for a balanced budget.

On The Kudlow Report, John Carney discusses J.P. Morgan CEO Jamie Dimon’s critique of federal policy towards the financial industry:




At Forbes, Brink Lindsey notes the difficulty of measuring economic growth.

On Commentary, John Podhoretz rebuts claims that the stimulus spending package was too small.

In The WSJ, Seth Lipsky suggests a constitutional scholar would be a positive addition to the Federal Reserve board.

Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.

That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.

My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?

The Washington Times notes that QE2’s end may mean higher interest rates.

At Fox News, Charles Krauthammer explains the economy’s weakness and confirms the 2012 election will center on economic stewardship:




Pew Research reports more Americans blame the deficit on war than on tax cuts or domestic spending.

The NY Sun notes the debt limit debate puts Republicans in an unwinnable political position.

Reuters reports a Chinese official speculating about further dollar weakening.

Weekend update: Lewis on the euro; Calhoun on the post-QE2 dollar; Rutledge on inflation.

From Forbes, Nathan Lewis explains why Europe is better off with a single currency.

On RCM, Joe Calhoun suggests the dollar’s post-QE2 rise will lead to stronger U.S. growth.

At The WSJ, Art Laffer and Stephen Moore report the population shift from forced union states to right-to-work states.

On The Kudlow Report, John Rutledge sees inflation picking up:




From Forbes, Peter Ferrara continues his comparison of Reaganomics with Obamanomics.

On Forbes, Rich Karlgaard explains the importance of economic growth.

At Forbes, Reuven Brenner links the mortgage crisis to government’s interference in credit markets.

On Kudlow, James Pethokoukis and Deroy Murdock discuss the debt limit:




At The Washington Post, Karen Hube recounts the benefits to average families of tax expenditures (h/t: Vlad Signorelli).

The NY Daily News reports that young New Yorkers say they will leave the city due to high taxes and unemployment.

Wednesday round up: Feiler and Bell on the unrestrained Fed; Woodhill on growth vs austerity; Goldman on gold and silver.

From The WSJ, Sean Feiler and Jeff Bell advocate gold as the only credible means to discipline the Federal Reserve.

At Forbes, Louis Woodhill counters John Mauldin’s deleveraging mania with a call for higher growth.

On The Kudlow Report, David Goldman discusses gold and silver prices:



In The WSJ, Holman Jenkins, Jr. suggests governments will cope with debt through austerity and inflation.

At Future of Capitalism, Ira Stoll wishes the Ryan tax plan made deeper cuts to corporate and individual tax rates.

On COAL, Paul Krugman argues a significant portion of the Ryan budget plan cuts spending on seniors and the poor to fund lower tax rates on corporations and top earners:



From The Hoover Institution, Kip Hagopian notes the inequities of the progressive tax system.

On TGSN, Ralph Benko reports a good article on the gold standard from the Economic History Association.

At National Review, Ramesh Ponnuru argues the Fed was right to enact QE2.

The NYT reports progress on the Colombia trade agreement.

Thursday round up.

Reuters reports Kansas City Federal Reserve President Thomas Hoenig says the gold standard is a legitimate system, but, oddly, doubts it would increase employment or prevent bank failures. (Hat tip: Ralph Benko.)

At Forbes, Steve Forbes suggests the Keynesian macroeconomic fine-tuning is discredited.

On The Kudlow Report, Brian Wesbury discusses unemployment:



At Economics21, David Malpass argues the Federal Reserve is behind the economic curve and should stop quantitative easing.

On RCM, John Tamny explains that QE2 is the wrong approach.

At Kudlow, new House Ways & Means Chairman Dave Camp (MI) discusses tax reform:



At Forbes, Ralph Benko advocates a resurgence of the GOP’s pro-growth wing over the austerity wing.

On Human Events, Newt Gingrich advises Republicans to focus on job creation.

From Forbes, Jerry Bowyer pens a terrific supply-side analysis of A Christmas Carol.

Wednesday items.

On Forbes, Ralph Benko skewers Fed Chairman Ben Bernanke’s quantitative easing plan.

At The WSJ, Michael Boskin explains the data that support tax rate cuts over spending stimulus.

On The Kudlow Report, Jerry Bowyer defends the eurozone and calls for sound money and lower taxes:




The WSJ editorial board notes the harm higher top tax rates do to job creators.

On NRO’s Corner, Cato’s Mark Calabria rebuts David Beckworth’s “conservative case for QE2.”

The WSJ reports U.S. Rep. Mike Pence’s (IN) superb recent Detroit Economic Club speech calling for a supply-side reform agenda.

After criticizing the excessive money creation under Federal Reserve Chairman Ben Bernanke, Mr. Pence called for eliminating the Fed's dual mandate to pursue both price stability and full employment. He wants the Fed to focus exclusively on price stability and thinks the U.S. should consider returning to gold in setting the value of the dollar. President Reagan understood that inflation is the thief of the middle class and that investor confidence is destroyed when governments debase the value of their currencies. Mr. Pence apparently understands this, too.

A brief video clip is here.

In The Washington Times, Richard Rahn examines insider trading.

In City Journal, Nicole Gelinas advocates tax reform:

Moreover, cutting tax breaks would be in the best supply-side tradition. Supply-side economists, after all, have long counseled lower tax rates for a reason: they figured that regular people could spend and invest their money more wisely than the government could. But rate reductions can’t work if the government continues to run people’s lives through the rest of the tax code.

Right now, we may have supply-side tax rates, but thanks to tax breaks, we’ve got a thoroughly demand-side tax code. That’s a toxic combination, considering that we need healthy economic growth to help us confront our national debt. The economy can’t grow optimally if Washington encourages Americans to pour more borrowed money into their houses at the expense of more productive investments. Nor can the economy fight its way out of stagnation if state and local governments keep pushing up their own taxes, with an assist from Capitol Hill and the White House.

At Lew Rockwell, Gary North obsesses over deficits and omits economic growth from his critique of the Laffer Curve.

Weekend update.

In a great Globe Asia piece, Cato’s Steve Hanke overviews commodity price chaos due to this decade’s falling dollar.

At Forbes, Lawrence A. Hunter argues the only true Federal Reserve reform is a gold price target.

On The WSJ, Mary Anastasia O’Grady discusses the Fed’s QE2 strategy:




The NY Sun editorial page suggests depoliticizing the Fed by linking the dollar to gold.

At Cato, Alan Reynolds rebuts The WSJ’s David Wessel on QE2.

In The Weekly Standard, former Bush Administration economist Larry Lindsey notes that if QE2 succeeds, interest costs on U.S. government debt will rise significantly.

Now suppose quantitative easing is “successful” in the way the Fed intends, taking inflation close to the average 2.4 percent rate of the last two decades and government borrowing costs back to their two-decade average of 5.7 percent. To get an idea of what happens to the budget, assume this transition happens over three years, so that by 2013 interest rates are back to “normal.” This “return to normal” will mean the government’s interest costs will rise to $847 billion by 2015 and $1.15 trillion by 2019.

The increase in annual interest costs in 2015 alone—$557 billion—is nearly six times the additional revenue that is supposed to be collected by letting the higher end of the Bush tax cuts expire, the centerpiece of the current fiscal policy debate in Washington. The increase in interest costs in 2019—$795 billion—is two-and-a-half times the value of all the Bush income tax cuts of 2001 and 2003 that are due to expire. On the spending side, just the extra interest cost from a quantitative easing “success” would swamp, say, the entire defense budget for the rest of the decade. No plausible increase in taxes or reduction in spending could fill a gap of that magnitude.

At The Pittsburgh Tribune-Review, GMU’s Don Boudreaux advocates ending the Fed.

In The WSJ, Hoover Institution’s W. Kurt Hauser explains that increasing growth, not raising tax rates, is the key to deficit reduction.

Bloomberg reports wealthy Britons may thwart that nation’s higher taxes:

“It’s my ambition to prove the Laffer Curve,” Hiscox, 67, said, referring to economist Arthur Laffer’s 1974 theory that tax receipts fall as governments raise taxes on the rich. “Income at 40 percent tax is quite painful. But losing 50 percent, plus all the other taxes -- it becomes onerous and less attractive to get income.”

At New World Economics, Nathan Lewis suggests renewing Glass-Steagal.

On Fiscal Times, Bruce Bartlett criticizes Republicans for cutting taxes to starve government, undermining his past critique of Republican claims that tax cuts pay for themselves.

Thursday items.

David Malpass’s Growpac initiates a petition against the Fed’s quantitative easing.

At First Things, David Goldman responds to NRO’s Ramesh Ponnuru on QE2.

On The Kudlow Report, Malpass assesses the market:




On Louisiana radio, John Tamny discusses government barriers to economic recovery.

At Politico, David Boaz recommends Republican emphasize not raising taxes in a recession.

On The NYT, David Leonhardt illustrates that growth was sub-par in the GW Bush years and suggests tax cuts don’t lead to growth:




Dallas’s D Magazine reports Steve Forbes blames the weak dollar for the financial meltdown.

At Commentary, John Steele Gordon mocks Leonhardt for discovering that strong growth would help solve the deficit.

On NRO, Stephen Spruiell argues Keynesian stimulus spending as deficit reduction is a bad idea.

Our friends at Bankrupting America summarize the non-monetary uncertainties government is creating for businesses:

Tuesday round up.

What Would Kemp Do?

An important factoid: The President’s fiscal commission based its recent deficit report (p. 10) – and its alarming diagnosis of “fiscal cancer” – on CBO's budget analysis (p. 28), which, according to Louis Woodhill, assumes annual GDP growth of 2.16% for the next 75 years.

Yet, as Woodhill notes, average growth over the past 75 years was 3.73% per annum. If the U.S. grew at that rate going forward, CBO's more pessimistic budget scenario balances in 2052 with no spending cuts or tax increases.

This isn't to say we shouldn’t cut government waste and bloat. We should.

But, in the middle of painfully high unemployment, shouldn’t conservatives be ringing alarm bells mainly over slow long-run growth? Restoring rapid growth through the proven formula (sound money + lower tax rates) would help the jobless and improve the budget – a win/win – and would move the right beyond the zero-sum austerity debate.


Update: This item has been reworked for clarity.
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At RCM, Joseph Calhoun argues the malaise is rooted in bad economic policy.

In The WSJ, likely presidential candidate U.S. Rep. Mike Pence (IN) proposes to repeal the Fed’s full employment mandate.

On The Kudlow Report, Pence explains his plan:




IBD notes that after tax rates were cut in 2003, the wealthy paid a higher percentage of taxes.

At The Washington Times, Richard Rahn suggests government caused the financial crisis, though he omits the falling dollar.

On Kudlow, David Goldman assesses the market’s decline:




On Charlie Rose, U.S. Rep. Paul Ryan (WI) repeatedly mentions sound money.

At the Peterson Institute, lead currency warrior C. Fred Bergsten insists China must revalue the yuan.

From YouTube, a viral video mocks the Fed’s QE2:

Wednesday round up.

The President’s deficit commission recommends spending cuts along with lower tax rates and elimination of deductions.

From August, Louis Woodhill exposes the commission’s low growth assumptions.

On The Kudlow Report, Don Luskin comments on how to play loose money and fiscal austerity:




At Forbes, Brian Wesbury and Robert Stein argue against quantitative easing.

In The FT, Alan Greenspan doubts the wisdom of a weaker dollar.

The WSJ editorializes in favor of trade liberalization to improve global imbalances.

A country's trade balance is simply an accounting identity that by definition matches the flow of goods and capital. Some countries export goods (a trade surplus) and also export capital to help other countries pay for those goods (a capital deficit). Others import goods (a trade deficit) while importing the capital with which to buy them (a capital surplus). Japan and Germany fall in the first category, the U.S. and India in the second. Either is perfectly normal.

The real problem is that for several decades many economies, especially in East Asia, have attempted to thwart these natural flows by running both trade and capital surpluses, and thus accumulating extraordinary levels of foreign currency reserves. Japan has done this for so many years that it is running a capital account deficit even as it sits on an enormous pile of U.S. Treasurys. China and South Korea do the same today.

This is where freer trade becomes so important. Trade barriers have long been a central policy tool for governments trying to keep their economies oriented toward exports. Trade barriers raise domestic prices by depriving consumers of the benefits of competition, while also artificially limiting their consumption options. Meanwhile, consumers and businesses aren't sending as much capital overseas to pay for imported goods.

On The NY Sun, Seth Lipsky defends Robert Zoellick from critics.

Cato’s Dan Mitchell worries the Fed is turning the dollar into a joke.

At NRO, Larry Kudlow links to Dan Mitchell’s latest video opposing tax increases:




In The Washington Examiner, Ralph Benko suggests ways to help the economy.

Tuesday update.

The WSJ editorial board cheers Sarah Palin and Robert Zoellick for their sound money statements.

At Asia Times, David Goldman endorses Zoellick's analysis.

Adding the dimension of a gold reference point is brilliant. During the late 1980s, we supply-siders promulgated a “Ricardian” gold standard, in which central banks would buy and sell currencies in order to stabilize the gold price in each currency (they wouldn’t have to own a great deal of gold to do this). It is not a gold fractional reserve system, in which claims on the banking system are payable in bullion, but a gold price reference, as Zoellick indicates.

We used to argue that gold was a good long-term indicator of the price level and that a stable gold price portended price stability. That is a naive view I abandoned fifteen years ago. If that were true, then we should have experienced a great deflation as gold fell from $800 at Christmas 1979 to well under $300 an ounce between 2000 and 2002.

Gold, I argued in a 1996 paper for Laffer Associates, should be thought of as a put option on the currency; the opportunity cost of holding gold instead of interest-bearing assets (plus storage costs) are the option premium. If central banks managed their currencies well, gold would trade at its commodity value, that is, around the marginal cost of production, which is now $600 to $700 for the largest mining companies. But if there is a risk that paper currencies will devalue by some extreme margin, it is worth holding gold as a hedge. We cannot price the option using the usual Black-Scholes formula or its variants because we do not know the volatility of a currency over the long term; this is a political matter and inherently uncertain. But if we think that monetary policy is headed to a disaster (QE2 will end up like the Titanic, in short), we will pay more for gold.

On The Kudlow Report, Goldman discusses rising gold and commodities:




At RCM, John Tamny critiques Fed Chairman Bernanke’s QE justification.

In The WSJ, Alan Reynolds critiques the logic of Bernanke’s strategy:

Mr. Bernanke is unconcerned, however, because he believes (contrary to our past experience with stagflation) that inflation is no danger thanks to economic slack (high unemployment). He reasons that if people can nonetheless be persuaded to expect higher inflation, regardless of the slack, that means interest rates will appear even lower in real terms. If that worked as planned, lower real interest rates would supposedly fix our hangover from the last Fed-financed borrowing binge by encouraging more borrowing.

This whole scheme raises nagging questions. Why would domestic investors accept a lower yield on bonds if they expect higher inflation? And why would foreign investors accept a lower yield on U.S. bonds if they expect exchange rate losses on dollar-denominated securities? Why wouldn't intelligent people shift their investments toward commodities or related stocks (such as mining and related machinery) and either shun, or sell short, long-term Treasurys? And if they did that, how could it possibly help the economy?...

There is ample evidence from commodity and foreign-exchange markets that world investors are indeed confident the Fed will raise inflation. However, the growing interest in shorting long-term Treasury bonds shows that the market does not believe higher inflation is consistent with lower long-term interest rates.

In other words, Mr. Bernanke and his FOMC allies are risking higher interest rates and inflated commodity costs in the pursuit of the contradictory objectives of higher inflation and lower bond yields, seemingly oblivious to all the evidence that they are pursuing an impossible dream.

On NRO, Larry Kudlow opposes Fed policy too.

Monday update.

At The NY Sun, Seth Lipsky applauds World Bank President Zoellick’s op-ed advocating a gold-based monetary system.

Also in The Sun, Lipsky notes Sarah Palin’s opposition to a weaker dollar.

On The Kudlow Report, Stephen Moore discusses President Obama’s willingness to extend all the Bush tax cuts:




At Forbes, David Malpass advocates spending cuts.

In The WSJ, Fed Governor Kevin Warsh promotes a long-term growth agenda:

Policy makers should take notice of the critical importance of the supply side of the economy. The supply side establishes the economy's productive capacity. Recovery after a recession demands that capital and labor be reallocated. But the reallocation of these resources to new sectors and companies has been painfully slow and unnecessarily interrupted. We are feeling the ill effects.

Fiscal authorities should resist the temptation to increase government expenditures continually in order to compensate for shortfalls of private consumption and investment. A strict economic diet of fiscal austerity has greater appeal, a kind of penance owed for the excesses of the past. But root-canal economics also does not constitute optimal economic policy.

The U.S. would be better off with a third way: pro-growth economic policy. The U.S. and world economies urgently need stronger growth, and the adoption of pro-growth economic policies would strengthen incentives to invest in capital and labor over the horizon, paving the way for robust job-creation and higher living standards.

In City Journal, economist Douglas Holtz-Eakin promotes tax reform as key to restoring economic growth.

The WSJ editorial page supports Washington state’s resounding rejection of higher taxes on the rich:

So what's the matter with Washington? Clearly, its middle-class residents understand an economic reality that eludes Mr. Gates and many other already-rich advocates of higher taxes: The absence of an income tax has been Washington's greatest comparative advantage over its high-income tax neighbors in California and Oregon. Texas Governor Rick Perry even sent a letter to Washington state's biggest employers, inviting them to move to no-income-tax Texas.

The larger message, which also eludes the nation's leading proponent of soak-the-rich tax ideas—the fellow in the Oval Office—is that the average person simply doesn't believe that the taxers will stop with the wealthy. To protect both themselves and the greater economy outside their windows, voters prefer a tax system whose rates aren't rising—on anyone.

Also on Kudlow, Art Laffer sounds optimistic in response to the President’s tax cut move:

Business Week reports emerging economies may be flooded with hot money due to Fed easing.

At NRO, Nobel laureate Gary Becker analyzes the roots of the financial crisis.

On Forbes, John Tamny critiques the NFL’s economic policies.

Wednesday items.

Housekeeping notes:

The American Principles Project has initiated the Gold Standard 2012 project, now added under Links.

Thanks to Bob Landry for suggesting Lewis Lehrman’s 1980 paper, “Monetary Policy, the Federal Reserve System, and Gold,” now in the Classic Articles section.
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In The WSJ, Sen. Jon Kyl (R-AZ) outlines a growth agenda focused on tax reform, lighter regulation, and spending cuts. Sound money doesn’t rate a mention.

On Smart Money, Don Luskin explains the impact of recent jobs numbers on markets.
At NRO, Larry Kudlow suggests the President is off message on the economy.

On Kudlow, National Review’s Stephen Spruiell debates government's role in the current malaise:



At Forbes, Brian Wesbury advocates patience rather than short term fiscal and monetary stimuli.

On The American Spectator, Peter Ferrara critiques the President’s economic policy.

At Café Hayek, Don Boudreaux challenges Paul Krugman’s claim that the recent Keynesian spending surge didn’t happen.

On The Kudlow Report, Stephen Moore debates free trade’s impact on jobs:



Investor’s Business Daily applauds Fed Vice Chairman Yellen for her skepticism on quantitative easing.

The Atlas Sound Money Project reposts Reuven Brenner’s 2003 article, “Alan Goldspan.”

The Washington Post’s Ruth Marcus hopes Republicans will follow Britain’s Tories with deep spending cuts and tax rate increases.